But won’t they gain a permanent strategic advantage over us, I hear you cry?

Well, this does sometimes happen. But it’s actually really rare. Notice how all the electronics goods seem to be manufactured in China? Even though we invented many of them (and the Japanese are responsible for a lot of the rest?) Notice that all the jobs assembling sneakers and looming textiles seem to have moved along with them? Sure, we had know-how and strategic supplier networks. But these were no competition for enormously cheap labor.

Green energy will only be the next great industry for us if we are the ones to profit from it. Being the first mover in an industry does not guarantee the profits. Subsidies do, however, guarantee that we pay the R&D costs. Let China continue to subsidize our solar power consumption while we work on advancements in industries in which we have a comparative advantage.

She also explains why the program’s success rate is misleading. Most of the firms receiving the money don’t need the help. They’d succeed with our without it. Those that most need the help – e.g. Solyndra – may fail, but the failure rate is hidden by the “success” of the other loans.

That is, I hope that the infographic will be broadly useful to people who support the program: I figure everyone should be interested to know where the money went. (And here’s a spreadsheet for those who want to trundle through the data themselves). But I have highlighted what jumped out at me: most of the money has gone to enormous companies that should have no trouble accessing capital. Established utilities, large multinational auto manufacturers, a global warehouse owner. The bulk of these funds are not going to rectify some gap in the capital markets. They’re straight subsidies to huge corporations. Even some of the smaller firms/deals are owned by large corporations like Total SA.

Giving large, established companies extra-cheap loans to build power plants, run transmission lines, and fix up the roofs of their warehouses is, in the immortal words of P.J. O’Rourke, like paying a Dairy Queen owner to keep his ice cream freezers on.

Yes, it’s their constitutional right, but the optics are also awful. Bloomberg reports:

Solyndra LLC executives refused to answer questions from a House energy committee investigating the solar-panel maker’s $535 million U.S. loan guarantee, which one Republican described as a half-billion dollar heist.
Chief Executive Officer Brian Harrison and Chief Financial Officer Bill Stover attended the House Energy and Commerce Committee’s investigations panel hearing today, flanked by their attorneys, as lawmakers said they were misled about Solyndra’s finances during meetings two months ago.

Harrison and Stover responded to questions by invoking their Fifth Amendment rights against self-incrimination.

We still have a long way to go to get America’s economy back on track and to make the United States the world leader in clean energy technologies, but companies like Solyndra and Recovery Act investments like this one are helping drive progress across the country. -WhiteHouse.gov, 5/26/2010

Solyndra intends to file a petition for relief under Chapter 11 of the U.S. Bankruptcy Code while it evaluates options, including a sale of the business and licensing of its advanced CIGS technology and manufacturing expertise. As a result of the suspension of operations approximately 1,100 full-time and temporary employees are being laid off effective immediately. -Solyndra Press Release, 8/31/2011

The government’s losing decision to invest in Solyndra – the first company to receive a loan guarantee from the Department of Energy, to the tune of $528 million in government aid, which was followed by bankruptcy – is bringing into question several more of the their investment decisions, and rightfully so. It is long past due to question the very idea of government investing in private companies and specific technologies to benefit and please special interests. Governments, or any other uninterested third party, will never invest money as wisely as private interests will. As Michael Barone writes:

But let’s assume for the time being that there was no criminal conduct here, no violation of government procedures, no fraud. Let’s assume everyone in the administration acted with good faith.
There’s still a scandal — the scandal of the government handing out hundreds of millions of dollars to unproven and speculative businesses. Even the shrewdest venture capitalists lose money on most of their investments. But when they lose, it’s their money, not ours.
The scandal is still going on. The Energy Department has been busy handing out more loan guarantees in the past few weeks — $150 million to 1366 Technologies of Lexington, Mass. (73 percent for Obama in 2008), 80 percent of $344 million to Solar City of San Mateo, Calif. (72 percent for Obama in 2008). Will one of them be the next Solyndra?

Normally the government would lose such an investment – and simply pass those losses on to the taxpayers – but the Energy Department had the foresight to arrange the privilege of first lender. That privilege was lost when the Energy Department approved a new loan for the company.

Complicating the politics of the situation for the Obama administration, the other lender was Argonaut, the investment company backed by George Kaiser, an Oklahoma oil billionaire who is an Obama campaign contributor. Argonaut was already heavily invested in Solyndra, and provided another $69 million in cash in exchange for taking over $75 million that Solyndra was owed by its customers.
The Energy Department’s approval was required for Solyndra to borrow any new funds, because if the loan was consummated, the federal government would have to surrender its status as the most senior lender, in favor of the new lender.

If this loan is also insufficient to make Solyndra profitable, the taxpayers will not recoup their money first. The New York Times quotes one unnamed OMB staff member:

If Solyndra defaults down the road, the optics will arguably be worse later than they would be today, the staff member wrote. He suggested that the question of whether to keep helping Solyndra be taken to the energy secretary, Steven Chu, so he would be ‘fully informed and accountable for the decision.’

Steven Chu was presumably fully informed on the last investment. His knowledge neither guarantees sound investment strategy nor offers confidence to taxpayers. After all, he found a way to invest in a losing company within a winning industry.

How he will be accountable for the decision is also worth defining now. Since he cannot reasonably pick up the tab, one presumes he would be asked to resign. The optics of that might also be ugly, but investments should be made to increase productivity and growth, not to make the government look respectable in a campaign season.